The View From Upstream -- NPK Update, Outlook

March 19, 2013 03:03 PM

As the spring application season begins, much of the upper Midwest has a few weeks before late winter snows melt. But fertilizer application has begun, where possible, and retail suppliers are topping off as weather conditions have allowed product to move from the factory to the retailer to the farm. This signals spring pricing points are in place and a look upstream seems to confirm that NPK pricing may have exhausted its upside potential.

Phosphate inventories continue to struggle to improve and February saw declines to levels 7% below the same time last year. While current U.S. DAP and MAP inventories are within the five-year average -- barely -- production fell 11% in February 2013 compared to January 2013, and was only slightly above year-ago levels.

The DAP/MAP market has ebbed and flowed over the past few weeks in the Inputs Monitor Index, adding $2.00 or so -- sometimes more -- and then falling the next week by nearly the same amount to correct. Look for phosphate pricing to stay within its current range in the short-term. Improving inventory levels would help P find some downside room, but remember ammonia as a wild card with DAP and MAP pricing.

Potash inventories are increasing again, but at a healthy pace. Production curtailments have largely ended in Saskatchewan and with the plants humming again, inventories increased 8% above year-ago in February. There is still plenty of K around -- currently, potash stocks are 37% above the five-year average -- and pricing on the ground has reflected the generous supply, falling another $3.50 last week in the Monitor Index to $580.83 regionwide.

Production and supply increases will keep a lid on upside action for potash in the short-run. If upstream K producers can manage the production/inventory balance, potash prices should continue to find plenty of downside room.

Lackluster seasonal demand has limited urea's upside potential and while some areas of the eastern belt have started applications, southern regions are reported to be very wet and curtailing demand. With much of the Midwest still under a blanket of snow and the south too wet to get into the fields, demand could spike as this spring arrives and prices could follow for a short period.

But analysts predict new urea supplies from Algeria and Abu Dhabi will be ready to ship in April or May of this year. The timing of this product's arrival could work out to moderate pricing in time for any late season spikes. Currently, retail urea holding steady in the Monitor Index, gaining $0.50 cents per ton last week to $567.66. That's $0.62 cents per pound of N for urea compared to $0.52 cents per pound of N from anhydrous.

Some growers have voiced intent to switch from anhydrous to urea this year, but for now, urea demand is slow and prices will have to wait for some fresh demand before moving to the upside.

All three nutrients are trending lower as demand lags. Urea presents an attractive nitrogen source but lacks demand. Phosphates are expected to remain within their current range given a quiet ammonia market, and upstream activity suggests potash will likely stay put as North American production resumes on an already robust supply.

*Based on data from USDA, TFI, Agrium & Inputs Monitor


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